As the owner of a family farm business, you have undoubtedly thought about what the future holds for you and your family. Your concerns probably extend to what you are going to do with the farm once you retire. Having a sound and relevant succession plan in place is one of the most important things you can do to alleviate your concerns.
Succession planning is an ongoing process. Depending on your personal situation, a proper succession plan will mirror the structure and timeline needed for your farm specifically.
You may be wondering where to start. Here are five basic steps to help you get started and continue on with your personalized succession plan:
1. Assess the current situation
Every situation is different. As such, the first thing you need is an objective and realistic perspective of your business and your family. Here are some helpful questions:
—Are you ready to consider planning for your retirement? Can you envision giving up control of a farm that you have invested most, if not all, of your life into? This is probably the most important question to ask. If you cannot imagine giving up control of your business, any succession plan implemented may not be realistic.
—Does a successor exist? If there is no one to take over the family farm, selling it may be your only option. Other times, there may be children who do not want to take over the farm. Or there may be children interested in taking over the farm, but are not capable. An objective perspective of the successor’s abilities is required to properly implement your plan.
—What about my other children? Often only one child that takes over the farm, with the others being left out. You may want to consider including all of your children equally, but this is something easier said than done. A relevant succession plan will take this into account.
2. Assess the future
No one can predict the future, but that doesn’t mean you can’t plan for what you and your successor’s needs will be. Plan with the following in mind:
—What do you want to retire with? What are your personal needs? What do you want to provide your heirs with upon your passing? Properly implementing a succession plan means looking at what you and your spouse will need to enjoy your retirement, as well as what you want to leave as a legacy.
—Will the farm be an attractive business for a successor to continue on with? Take an objective look at the farm’s long-term viability when structuring a succession plan.
—When do I start transitioning the succession of my farm? If there is an appropriate successor, including him or her in making business decisions, meeting contacts, and performing business duties should be given weight for your plan.
3. Assemble your advisory team
Having a proper team in place to assist you with your plan is an essential step. Your advisors have the knowledge and experience to guide you in the development and implementation of your plan, and can also help to manage the costs of succession. The following advisors should be on your team:
—Accountant. An accountant knows how to structure your succession plan, and can coordinate it to minimize taxes.
—Lawyer. Your lawyer will assist with the drafting of legal documents to execute a plan, including your will.
—Banker. A banker may assist in the structuring of the plan’s financing needs.
—Investment agent. Consult with an investment agent to best structure how your investments will work.
—Insurance agent. An insurance agent can advise you on the benefits of using an insurance policy in your succession plan.
4. Document and communicate
This step is ongoing throughout the entire process. Properly communicating and documenting your plan will prevent any potential confusion or ill will in the future. Here are three documents that you should have for your succession plan:
—A written succession plan. Putting the plan formally into writing will legitimize it. It will also reflect the plan in detail so that all stakeholders can review and come to an agreement on its implementation.
—Your will. Having your will drafted and updated will properly convey your desires upon your passing, and will reinforce the formulated succession plan.
—A shareholder agreement. If your farm is incorporated and you and your successor are shareholders, having a formalized agreement in place can assist in implementing your plan. A shareholder agreement can also mitigate risks to the plan, including divorce, disability, or death.
5. Monitor and update
This is also an ongoing step. Your plan should be continually monitored and updated as circumstances change. Your plan must be flexible enough to change if needed. If not, the plan may no longer be relevant and its purpose defeated.
Regardless of your stage in life, some sort of succession planning should be considered for you and your business. Without contemplating a viable succession plan, your farm business may end in disaster and place unnecessary burdens on its stakeholders. Witnessing the failure of one farm business due to improper planning for retirement and succession is one time too many. However, by taking some time and following the above steps, you can ensure that your business succession plan is the most optimal strategy for you, your family, and your business’ success.
Shawn Friesen is a senior manager with BDO Dunwoody in Portage la Prairie, Man.